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How Many Short Sale Offers Go To The Bank?
Short sale agents and yes, even lawyers, sometimes struggle with proper protocol regarding the handling of short sale offers. If you’re new to the short sale arena, you might not even know who is a party to a short sale. You might think the bank is a party to the short sale. I’ve yet to see a spot in the purchase agreement for a short sale bank to sign. Banks are a component as a contingency but the short sale bank is not a party to the short sale.
Even sellers get confused. I’ve had sellers ask over and over if the bank is paying the costs of the sale. It can be argued that the costs of sale are reducing the net proceeds to the bank, and that part is true. But the bank does not own the property. This is the thing people forget. The seller owns the property, and therefore the seller is paying the costs of sale. The bank is interested and approves the costs of sale only because if costs can be reduced, the bank’s check goes up.
The short sale is contingent on bank approval, but the bank does not sign the short sale offer. The bank approves the purchase offer agreed to between the buyer and seller. Unless the Sacramento short sale agent signs an agreement with the bank to get the bank the highest price possible, the parties to satisfy are the seller and the buyer. Of course, a wise short sale agent knows the bank will base, in part, the decision to approve the short sale on the BPO. This means the agent submits an executed purchase contract that will meet market value.
It’s a major mistake to believe that the short sale banks expect to receive every offer submitted to the seller. The bank wants to see the offer that is sufficient to net the bank an acceptable amount. The bank wants to see the offer that the seller and buyer have accepted. The bank wants to see the offer from the buyer who is qualified, committed and dedicated to closing the transaction. If a short sale agent sends a bunch of offers to the bank, it signals the agent is clueless, and the bank will most likely reject all of the offers.
What is a Short Sale BPO?
Back in the olden days of real estate, before short sales in Sacramento, you almost never heard the term BPO if you weren’t working in the REO market. The REO market means “real estate owned” and it’s an acronym. Refers to bank-owned foreclosure homes. But BPO can also apply to a short sale.
The way it works is this: When a Wall Street bank worth billions wants to know how much a Sacramento home valued at multiple hundreds of thousands is actually worth, instead of hiring an appraiser — a person most likely with a college degree, who has specialized training, knowledge and the experience to conduct real estate appraisals and receives a fee of $400 to $500 for this service — this bank instead might hire a Sacramento real estate agent, a real estate agent who quite possibly could have dropped out of high school and never sold a lick of real estate a day in her life, and pay this agent fifty bucks to do a BPO.
This is the infinite wisdom of our banks that helped to get us into this miserable state of affairs in real estate to start with. What what are ya gonna do?
Now that we have short sales, banks use the same principle to determine value. They hire a real estate agent to do a BPO. This acronym stands for Broker Price Opinion. Whether the home is valued by an appraisal or by a BPO understand one thing: they are both a matter of opinion. Albeit the appraisal is a bit more complex and calculated, but it’s only as good as the comparable sales that are used, in the opinion of the appraiser.
You ever notice how two people can look at the same thing and see completely different things? One person might look out the door and say, “It’s raining.” Another person might see clouds on the horizon, the sun peeking through and say, “It’s a beautiful sunny day.”
Nonetheless, the bank will accept the short sale BPO and base its decision, in part, on whether to approve your short sale on this price. But it’s only good for 3 months. After 3 months have come and gone, that value vanishes and becomes questionable, so the bank will want to acquire a new short sale BPO. A really clever bank negotiator who never wants to close a file can continue to let BPOs expire and drag the file on and on and on into infinity and beyond, Buzz Lightyear.
